Spurred by favorable interest rates, currency traders have bid up the value of the New Zealand Dollar to a 20-year high in trade weighed terms. This week, however, the NZD was a dealt a major blow, as Standard and Poor’s announced that New Zealand can no longer sustain its massive current account deficit, which is approaching 8% of GDP. In addition, the Central Bank of New Zealand announced the end of its policy of monetary tightening. If the US, Europe, and Canada continue to raise interest rates, the New Zealand interest rate differential will become less attractive. As the old saying goes, ‘what comes up must come down.’ The Financial Times reports:

The Australian dollar fell 0.7 per cent to A$2.3169 against sterling as soft GDP data strengthened a perception that Aussie rates have also peaked.

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